NEW DELHI: The Central government is set to replace the Compensation Cess with a new levy of 70% or higher on tobacco and tobacco-related products.
Finance Minister Nirmala Sitharaman will introduce the Central Excise (Amendment) Bill, 2025, in the Lok Sabha on Monday to replace the existing GST Compensation Cess currently imposed on these products.
Under the new Bill, tobacco and related products will attract a 70% cess over and above 40% GST, while cigarettes will face a specific cess ranging from Rs 2,700 to Rs 11,000 per thousand sticks, depending on length. The move is aimed at safeguarding tax revenues once the Compensation Cess is phased out.
According to the Statement of Objects and Reasons, the Compensation Cess on tobacco and related products will be discontinued after all interest payments and loan liabilities under the cess account are fully settled. The amendment is intended to provide the government with fiscal space to increase the central excise duty on tobacco to “protect the tax incidence”.
The proposed overhaul reflects the government’s intent to maintain the historically high tax burden on tobacco. Currently, tobacco, cigarettes and related items are taxed at 28% GST, plus a compensation cess of 5–290%.
The FM will also introduce the Health Security and National Security Cess Bill, 2025, which proposes a new cess on pan masala and possibly other products to be notified later.